Show cause notice limits, marketability, and extended period failed in dispute over semi-finished herbal extracts.
A demand cannot be sustained where the adjudication travels beyond the show cause notice: a notice issued on Chapter 13 could not support classification under Chapter 30, so the classification was invalid. Semi-finished herbal extracts cleared from the Delhi unit were not shown to be marketable in that condition, were restricted for further processing, and therefore did not constitute excisable goods at that stage. The extended period also failed because the authorities were aware of the manufacturing activity, declarations had been filed, and suppression or wilful misstatement was not proved. The impugned order was therefore unsustainable and the appeal succeeded with consequential relief.
Issues: (i) whether the adjudication could sustain a classification under Chapter 30 when the show cause notice proceeded on Chapter 13, (ii) whether the semi-finished herbal extracts cleared from the Delhi unit were marketable and therefore excisable goods, and (iii) whether the extended period could be invoked for alleged suppression of facts.
Issue (i): whether the adjudication could sustain a classification under Chapter 30 when the show cause notice proceeded on Chapter 13
Analysis: The notice proposed classification under Chapter 13, but the impugned order classified the goods under Chapter 30. A demand or classification order cannot travel beyond the foundation laid in the notice, since the assessee must be put to notice of the exact basis on which liability is proposed.
Conclusion: This issue was answered in favour of the assessee.
Issue (ii): whether the semi-finished herbal extracts cleared from the Delhi unit were marketable and therefore excisable goods
Analysis: The goods were only intermediary, semi-finished extracts meant for further processing at the Bangalore factory. The drug licence itself restricted sale to others, and the record did not show that the goods were marketable in the condition in which they emerged from the Delhi unit. The applicable circular also treated such vegetable extracts emerging at an intermediary stage as not marketable unless subjected to preservative treatment. In the absence of marketability, duty could not be fastened.
Conclusion: This issue was answered in favour of the assessee.
Issue (iii): whether the extended period could be invoked for alleged suppression of facts
Analysis: The authorities were already aware of the Delhi and Dehradun manufacturing activity, and declarations had been filed. The movement of duty liability, if any, would also be neutralised by credit at the Bangalore factory, which negatived any motive to evade duty. On the record, suppression or wilful misstatement was not established.
Conclusion: This issue was answered in favour of the assessee.
Final Conclusion: The impugned order was unsustainable, the goods were not liable to excise as cleared from the Delhi unit, and the appeal succeeded with consequential relief.
Ratio Decidendi: A demand cannot be sustained when the adjudication departs from the show cause notice, and semi-finished intermediary goods are not excisable in the absence of proved marketability and a legally sustainable basis for invoking the extended period.